Regulation D: How does it affect you?

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In a Nutshell

Regulation D deals with reserve requirements — the amount of funds that depository institutions need to have reserved to cover deposits. Regulation D also limits certain types of withdrawals from savings and money market accounts to six a month.

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Regulation D is the reason your savings account has that annoying transfer or withdrawal limit.

The Federal Reserve was established in 1913 to provide the nation with a safer, more-flexible, more-stable monetary and financial system. Part of the Federal Reserve’s responsibility is regulating depository institutions, like banks.

One of the regulations the Federal Reserve enforces is Regulation D, which focuses on the requirements for depository institutions to establish reserves of money. Basically, the Federal Reserve wants to make sure that depository institutions have enough money on hand to meet account holders’ needs. But it affects consumers, too.


What is Regulation D?

Regulation D is one of many measures enforced by the Federal Reserve. Besides imposing reserve requirements, Regulation D defines what transaction accounts and savings accounts are. Unfortunately, the monthly limit of six “convenient” transfers or withdrawals is tied to accounts that are defined as savings accounts.

So what counts as a savings account? According to the Federal Reserve, savings accounts have two significant features. First, a savings account restricts the number of convenient transfers or withdrawals an account holder can make. Second, the bank account has a “reservation of right” requirement. This means that the bank reserves the right to, at any time, require at least seven days’ written notice for an intended withdrawal from a savings account. Although the reservation of right is required for a savings account agreement, banks never exercise this right in practice, according to the Federal Reserve.

What transactions does Regulation D affect?

Both savings accounts and money market accounts are subject to the six convenient monthly transfers or withdrawals. But not all transfers or withdrawals are affected by this limit.

In particular, the following types of transfers and withdrawals are subject to the limit:

  • Preauthorized automatic transfers (such as overdraft protection and bill payments)
  • Transfers and withdrawals initiated by telephone, fax or computer
  • Transfers made by check, debit card or other similar order made by the depositor and payable to third parties

The following types of transactions are not subject to the limit:

  • Withdrawals or transfers made in person at the bank
  • Withdrawals or transfers made by mail
  • Withdrawals or transfers made by using an ATM
  • Withdrawals made by telephone when the withdrawal is disbursed via check mailed to the depositor

What happens if you go over the transaction limit?

You may be wondering what happens if you go over the transaction limit. There isn’t a universal answer. Instead, each bank or other type of depository institution has its own rules.

Some institutions will charge you a fee for making more than the six transactions allowed by law. For example, Ally charges a $10 fee for each transaction above the six-transaction limit.

Other institutions may institute more-severe penalties. Seattle Credit Union reserves the right to limit withdrawal/transfer capability, to automatically convert your savings account to a transaction account, or close your account altogether. Some institutions may simply reject your transfer request.

How to avoid getting tripped up by Regulation D

The easiest way to avoid getting tripped up by Regulation D is to make sure the money you need to use on a regular basis is in a checking account. That way, you don’t have to worry about transaction limits.

If you do find yourself approaching or hitting the six-transaction limit on a regular basis, carefully look at why you make withdrawals or transfers from your savings account. Try to cut down on those types of transfers or withdrawals. For example, you may decide to pay bills from your checking account instead of your savings account.

Another way to reduce transfers is to turn off overdraft protection. This way, you won’t waste one or more of your six monthly transactions covering overdrafts. Instead, your purchase will get declined.

If you do need to transfer money, you can make larger transfers rather than smaller transfers. You can also transfer money from your checking account back to your savings account.

Finally, you can still make more than six withdrawals per month. Just make sure to use one of the withdrawal methods mentioned above that aren’t limited by Regulation D.


Bottom line

Regulation D limits savings accounts and money market accounts to six so-called “convenient” transfers or withdrawals per month. If you exceed the monthly limit, you may be charged fees, have your account closed or have your transaction denied. You can get around this limit by making withdrawals and transfers that the Federal Reserve doesn’t consider “convenient.”

You may want to consider using a different type of bank account if Regulation D’s withdrawal limits cause problems for you on a regular basis. If a checking account or other account options don’t work for you at your current institution, consider looking for a new bank or credit union that better fits your needs.